Apple's Huge Buyback Could Attract Imitators [View article]
Something that AAPL investors need to think about as smartphones start to mature: "past returns are not indicative of future results." The first Sony Walkman came out in 1979. In inflation-adjusted dollars, it cost the same as an Iphone at introduction. Within 5 years, prices had halved, with the margin compression that implies.
A key aspect of the Internet mania was the idea that everyone was simply going to spend so much more money on Internet services that no Internet capital investment was too large and too wasteful. With AAPL, a key theme among the faithful appears to be that feature phone users will simply start spending $800 on smartphones, instead of the typical $50-$200 they had been spending in the past (with some of the price of the smartphones being buried into $60/mo plans vs the $20-$30/mo plans typically incurred for feature phones).
In other words, users will simply eat out less or turn the thermostat down during the winter just to have the privilege of owning a high-end smartphone. That aspect of investor hopes may pan out, but the odds, based on history, are not encouraging.
Why Apple's P/E Multiple Is An Anomaly [View article]
"Because Apple has it's assembly done at Foxconn and irrespective of how many sternly worded directives from Cupertino about not sharing technical secrets"
Foxconn manufactures AAPL products from soup to nuts. How many technical secrets could AAPL have? The reality is that micro-electronics ain't space exploration - if you see a cell phone feature, you can reverse-engineer it. This is why AAPL has spent so much money suing other cell phone manufacturers - it can't stand see seeing other companies use the same concepts it ripped off from Nokia, Palm and Motorola.
Several Theories To Explain Apple's Nosedive [View article]
"No way it was overvalued at that PE, but the high price of just one share keeps small investors away from the stock"
That's a shibboleth that I suspect isn't true. Odd lot markups and outsized commissions for buying odd lots are history. Anybody can buy a couple of shares of AAPL.
Several Theories To Explain Apple's Nosedive [View article]
2/3 of AAPL's cash is in over 90 day maturity instruments. It would be amusing if interest rates were to spike and saddle AAPL with hefty capital losses in its bond portfolio. That's assuming they're invested in something as safe as bonds, of course.
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
"If the price point of the finished goods cannot be maintained, the bill of materials costs will decrease similarly as will assembly costs due to economies of scale. Margins can be sustained."
While in theory margins could sustained, in practice, the history of these price declines in the consumer electronics sector has resulted in smaller margins on an industry-wide basis. These declines are why many of the iconic consumer electronics makers you grew up with* are no longer in existence or have been acquired by companies with no relationship to the original entities.
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
"I suggest you take a look at B&O TV prices and then include some other top brands in just that sector of the CE market. I'm not saying they are better products, as Apple's iOS devices clearly are, I'm saying that there is a healthy premium market out there."
B&O has annual sales of less than $1b. A premium market certainly exists, and will continue to exist. It's just not all that big, revenue and income-wise. And that's the problem for Apple (and its competitors) - price compression that will bring margins down with it.
Several Theories To Explain Apple's Nosedive [View article]
"If you adjust the revenue down for Q4 in 2011 and up for q4 2012..basically adjusting for the extra week in 2011"
The Iphone 4S had 12 weeks of sales in 1Q12 whereas the Iphone 5 had 13 weeks in 1Q13. Look at the calendar any way you want - the fact is that AAPL sold 18% more Iphones and had $13.1b in earnings in 1Q12 and $13.1b in earnings in 1Q13. That's the very definition of falling margins - higher unit sales without higher profits.
When the Iphone was introduced in 2007, AAPL became a no-excuses earnings growth story for years. Now, as growth slows, the excuses are starting to emerge and we are having to get in the weeds to figure out why AAPL had flat earnings. Bottom line is that today's AAPL is not the growth story it was a year ago, and it's not clear whether things will stabilize a year from now or continue to go south. At which point investors who bought in at today's prices will wish they had sold instead of holding on.
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
"Take a big chunk of the recurring revenue that cable companies make today and put it into AAPL's pockets in a few years."
Cable companies make money mainly from providing the conduit through which cable services are provided. Unless AAPL is prepared to become a cable provider or a phone company, I fail to see how it makes any money off the content providers in the way that Comcast or Verizon do. Cable channel content providers have to work with Comcast and Verizon. They don't have to work with AAPL.
Besides, AAPL's content store doesn't exist in a vacuum - it needs to compete with other content retailers on price and the prices it pays for content are determined by the content providers. Jobs himself said that AAPL targets break-even on the stores. An overenthused Apple fan/NYT reporter suggested that AAPL made huge amounts of money on $0.99 songs until someone pointed out that credit card companies charge a $0.25 minimum processing fee (which is why many mom-and-pop stores will not take a charge card for sub-$5 transactions) and the cost of the songs was $0.80 per song. http://nyti.ms/VSOG6c
The interesting thing about electronic content sales is that retailers actually make less money from them - content sellers get all the benefit. And that makes a lot of sense, since another electronic retailer is just a mouse click away, whereas physical stores were distinguished, at minimum, by their geographical distance from the customer.
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
"Zhang, the point you are missing is that Apple controls the software and the hardware, and they are a low cost producer; a very good analogy is they are the Lexus of phones. The difference is that you get the Lexus for $50-$100 more than the Pintos and Vegas."
Consumer electronics and cars are quite different creatures. When was the last time you saw a new car selling for less than its predecessor from several years ago? The issue here has to do with consumer electronics undergoing severe price compression. Cell phones used to cost $5000 and looked and felt like a brick. But that was when everyone made tons of money. Because they were all selling to high end buyers. Then the high end became $800, and some players started losing money. Then it went to $250 and more started losing money. What will AAPL margins look like when high end smart phones go to $250?
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
The law of large numbers refers to the idea that a fair coin tossed an infinite number of times reverts to the mean, i.e. heads 50% of the time and tails 50% of the time.
The reason AAPL will see earnings declines has to do with prices coming down across the spectrum. At inception, high end mobile phones cost thousands of dollars and looked like a brick. At that point, everyone made money. Then prices came down dramatically and many industry players started losing money.
AAPL's $800 price point will not hold, any more than high end laptops continue to cost $5000 today. When that price point collapses, AAPL's earnings will collapse with it. When products mature, prices come down, compressing margins along with them. Nobody's saying that AAPL will go out of business, but AAPL with 1/3 this past year's earnings is going to look much less attractive at $500 per share.
"With mounting competition, market saturation, and affordability factors, earnings were likely to suffer. It has happened faster than I thought."
These are key points. There's a huge and fast growing market for smart phones out there, but that market is for feature phone users who are looking to upgrade to smart phones at feature phone price points. The market for $800 smart phones is about to slow to a crawl. It's clear that the Iphone 5 has cost AAPL more to produce, based on the fact that 28% more units at last year's ASP's yielded a 0% profit increase. As the $800 smart phone market slouches towards zero growth, and AAPL's costs per unit go up because AAPL's hardware now has to match the competition's (where it previously got away with much junkier hardware because its software *was* obviously superior), we can expect to see AAPL begin to report lower earnings. In time, AAPL investors will begin to think of the era of flat earnings as the good old days.
In Defense Of Apple: Battling The Mounting Hysteria [View article]
"For one, I don't think that the difference in weeks between 4Q12 and 4Q13 can be evaluated linearly. People buy seasonally, not at a constant rate."
The new Iphone 5 was available for 13 weeks in 1Q13, but the (then) new Iphone 4S was only available for 12 weeks in 1Q12. If you look at the headlines for the period, the Iphone 4S encountered widespread shortages in 1Q12 and demand was pushed into 2Q12. The Iphone 5 was universally available in 1Q13, which means 2Q13 could be a pretty bad quarter in terms of Iphone 5 unit volumes, assuming Apple holds the line on pricing.
With Apple, What A Difference A Week Makes [View article]
"For example, the first few weeks of supply may have to be shipped air-freight rather than ground or sea."
I am aware of all the upfront fixed costs. Your generalized observations are shibboleths in the service and manufacturing world, back before anyone started putting numbers down to papyrus to track profits thousands of years ago. The problem is that the Iphone 4S was introduced in the 3rd week of October in 2011, whereas the Iphone 5 was introduced in September 2012.
Apple's Huge Buyback Could Attract Imitators [View article]
A key aspect of the Internet mania was the idea that everyone was simply going to spend so much more money on Internet services that no Internet capital investment was too large and too wasteful. With AAPL, a key theme among the faithful appears to be that feature phone users will simply start spending $800 on smartphones, instead of the typical $50-$200 they had been spending in the past (with some of the price of the smartphones being buried into $60/mo plans vs the $20-$30/mo plans typically incurred for feature phones).
In other words, users will simply eat out less or turn the thermostat down during the winter just to have the privilege of owning a high-end smartphone. That aspect of investor hopes may pan out, but the odds, based on history, are not encouraging.
Why Apple's P/E Multiple Is An Anomaly [View article]
Without smartphones, AAPL would be worth $100.
Why Apple's P/E Multiple Is An Anomaly [View article]
Foxconn manufactures AAPL products from soup to nuts. How many technical secrets could AAPL have? The reality is that micro-electronics ain't space exploration - if you see a cell phone feature, you can reverse-engineer it. This is why AAPL has spent so much money suing other cell phone manufacturers - it can't stand see seeing other companies use the same concepts it ripped off from Nokia, Palm and Motorola.
Several Theories To Explain Apple's Nosedive [View article]
That's a shibboleth that I suspect isn't true. Odd lot markups and outsized commissions for buying odd lots are history. Anybody can buy a couple of shares of AAPL.
Several Theories To Explain Apple's Nosedive [View article]
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
While in theory margins could sustained, in practice, the history of these price declines in the consumer electronics sector has resulted in smaller margins on an industry-wide basis. These declines are why many of the iconic consumer electronics makers you grew up with* are no longer in existence or have been acquired by companies with no relationship to the original entities.
* Magnavox, RCA, Zenith, Fisher, et al.
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
B&O has annual sales of less than $1b. A premium market certainly exists, and will continue to exist. It's just not all that big, revenue and income-wise. And that's the problem for Apple (and its competitors) - price compression that will bring margins down with it.
Several Theories To Explain Apple's Nosedive [View article]
The Iphone 4S had 12 weeks of sales in 1Q12 whereas the Iphone 5 had 13 weeks in 1Q13. Look at the calendar any way you want - the fact is that AAPL sold 18% more Iphones and had $13.1b in earnings in 1Q12 and $13.1b in earnings in 1Q13. That's the very definition of falling margins - higher unit sales without higher profits.
When the Iphone was introduced in 2007, AAPL became a no-excuses earnings growth story for years. Now, as growth slows, the excuses are starting to emerge and we are having to get in the weeds to figure out why AAPL had flat earnings. Bottom line is that today's AAPL is not the growth story it was a year ago, and it's not clear whether things will stabilize a year from now or continue to go south. At which point investors who bought in at today's prices will wish they had sold instead of holding on.
Several Theories To Explain Apple's Nosedive [View article]
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
Cable companies make money mainly from providing the conduit through which cable services are provided. Unless AAPL is prepared to become a cable provider or a phone company, I fail to see how it makes any money off the content providers in the way that Comcast or Verizon do. Cable channel content providers have to work with Comcast and Verizon. They don't have to work with AAPL.
Besides, AAPL's content store doesn't exist in a vacuum - it needs to compete with other content retailers on price and the prices it pays for content are determined by the content providers. Jobs himself said that AAPL targets break-even on the stores. An overenthused Apple fan/NYT reporter suggested that AAPL made huge amounts of money on $0.99 songs until someone pointed out that credit card companies charge a $0.25 minimum processing fee (which is why many mom-and-pop stores will not take a charge card for sub-$5 transactions) and the cost of the songs was $0.80 per song. http://nyti.ms/VSOG6c
The interesting thing about electronic content sales is that retailers actually make less money from them - content sellers get all the benefit. And that makes a lot of sense, since another electronic retailer is just a mouse click away, whereas physical stores were distinguished, at minimum, by their geographical distance from the customer.
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
Consumer electronics and cars are quite different creatures. When was the last time you saw a new car selling for less than its predecessor from several years ago? The issue here has to do with consumer electronics undergoing severe price compression. Cell phones used to cost $5000 and looked and felt like a brick. But that was when everyone made tons of money. Because they were all selling to high end buyers. Then the high end became $800, and some players started losing money. Then it went to $250 and more started losing money. What will AAPL margins look like when high end smart phones go to $250?
Regardless Of Price, Apple's Intrinsic Value Is Still On Its Way To $1,000 [View article]
The reason AAPL will see earnings declines has to do with prices coming down across the spectrum. At inception, high end mobile phones cost thousands of dollars and looked like a brick. At that point, everyone made money. Then prices came down dramatically and many industry players started losing money.
AAPL's $800 price point will not hold, any more than high end laptops continue to cost $5000 today. When that price point collapses, AAPL's earnings will collapse with it. When products mature, prices come down, compressing margins along with them. Nobody's saying that AAPL will go out of business, but AAPL with 1/3 this past year's earnings is going to look much less attractive at $500 per share.
Why Apple's Plunge Makes Sense [View article]
These are key points. There's a huge and fast growing market for smart phones out there, but that market is for feature phone users who are looking to upgrade to smart phones at feature phone price points. The market for $800 smart phones is about to slow to a crawl. It's clear that the Iphone 5 has cost AAPL more to produce, based on the fact that 28% more units at last year's ASP's yielded a 0% profit increase. As the $800 smart phone market slouches towards zero growth, and AAPL's costs per unit go up because AAPL's hardware now has to match the competition's (where it previously got away with much junkier hardware because its software *was* obviously superior), we can expect to see AAPL begin to report lower earnings. In time, AAPL investors will begin to think of the era of flat earnings as the good old days.
In Defense Of Apple: Battling The Mounting Hysteria [View article]
The new Iphone 5 was available for 13 weeks in 1Q13, but the (then) new Iphone 4S was only available for 12 weeks in 1Q12. If you look at the headlines for the period, the Iphone 4S encountered widespread shortages in 1Q12 and demand was pushed into 2Q12. The Iphone 5 was universally available in 1Q13, which means 2Q13 could be a pretty bad quarter in terms of Iphone 5 unit volumes, assuming Apple holds the line on pricing.
With Apple, What A Difference A Week Makes [View article]
I am aware of all the upfront fixed costs. Your generalized observations are shibboleths in the service and manufacturing world, back before anyone started putting numbers down to papyrus to track profits thousands of years ago. The problem is that the Iphone 4S was introduced in the 3rd week of October in 2011, whereas the Iphone 5 was introduced in September 2012.